retail industry and impact of technology

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Retail Industry

Development andImpact of

Technology



Khesraw Mansoory ISM 158

Pankaj Mehra June 3, 2010

Retail Industry DevelopmentThe retail industry business has been around for centuries in the United States. It all

started with a community general shop where people of the community would shop for items of necessity. Single general stores by local residents were the most common becausespecialty stores were not really necessary due to limited population within the city and dis-connectivity of people. As societies advanced with population increase leading toexpanded cities, and new advanced technologies gave rise to interconnectivity as well easycommunication between distanced cities or societies, opportunity for specialty stores wasformed. But before the specialty stores formed into a business the function of the generalstore was most essential because they provided the varied needs of the local community.

Also the reason for the striving success of these general stores then was "necessity".People around had no other options but to go for the general store.In the current scenario, the US retail industry is thriving and booming. With theexponential growth of the retail business across the whole of the United States, it is morelikely to predict that this industry will very soon come in to the category of theinfrastructure industry.

Adaptation is the most essential aspect of a Retailer’s business as trends of societyas well as the taste for new product variety change and people demand more. If a businessis unable to meet the demands of the market then they will very likely to be eliminatedfrom the business they practice. Managing customer relations and attending their needs is a



very important issue in business-to-business markets. Customer is the prime focus in retail business and only they matter because they are the ones who buy the retailer products. If my sole business function is to sell complete products and I want a loyal and squanderingcustomer, then I must keep them happy and provide for them what they want, otherwisethey would take their business somewhere else.

Just as people’s preferences changed with time, just as business functions of aretailer adapted, just like that the informal markets evolved over time to formal and more permanent markets. As a result of this transformation and evolution of the market, travelers began traveling around to sell their goods and so they were known as “peddlers.” Retailingis a term for collective selling from any of the retail sectors of business, either from regular market, a permanent market, or even peddling of goods.

Today, retail is one of the biggest employers in the world and a large portion of theworld economy. The retail industry is a sector of the economy that is comprised of individuals and companies selling finished products to end user consumers. Retail chains

in the U.S. are publicly traded on the stock exchange and privately owned. An estimatedtwo-thirds of the U.S. gross domestic product (GDP) comes from retail consumption.Retail industry is a good indicator of the well-being of the U.S. economy. According to thelatest annual report from the U.S. Census Bureau (2009), the total amount of sales for theU.S. Retail Industry (including food service and automotive) was $4.13 trillion. Of theworld’s 10 largest retail companies in the world, five of them are from the US and five arefrom Europe. The top ten global retailers had combined sales of $1.15 trillion in 2008,according to international consulting group, Deloitte. According to the U.S. Bureau of Labor Statistics, around 14.4 million people were employed in the U.S. Retail Industry asof April, 2010. Although retail employment was increasing every month at the beginningof 2010, due to the recent recession of the economy, the retail employment numbers werestill the lowest they've been for the past decade. Due to the decline in retail jobs and theincrease in overall unemployment, the retail job market in 2010 is extremely competitive atall levels.



U.S. Retail Industry OverviewAmount Unit Year

Total Retail Sales in 20091 4,281 Bil. US$ 2009

Total Retail Sales in 20081 4,413 Bil. US$ 2008

GAFO2 sales in 2008 1,155 Bil. US$ 2008

Total e-Commerce Retail Sales in 2009 131.8 Bil. US$ 2009

Total e-Commerce Retail Sales in 2008 132.3 Bil. US$ 2008

Motor Vehicle & Parts Dealers 792.9 Bil. US$ 2008

Furniture & Home Furnishings 105.5 Bil. US$ 2008

Electronics & Appliance Stores 111.1 Bil. US$ 2008

Bldg. Materials & Garden Equip. & Supplies Dealers 323.3 Bil. US$ 2008

Food & Beverage Stores 587.7 Bil. US$ 2008

Health & Personal Care Stores 245.8 Bil. US$ 2008

Gasoline Stations 478.9 Bil. US$ 2008

Clothing & Accessories 216.0 Bil. US$ 2008

Sporting Goods, Hobby, Book & Music Stores 87.7 Bil. US$ 2008

General Merchandise Stores 596.0 Bil. US$ 2008

Miscellaneous Store Retailers 117.5 Bil. US$ 2008

Nonstore Retailers 297.6 Bil. US$ 2008

Food Services & Drinking Places 452.9 Bil. US$ 2008

Annual Disposable Personal Income per Capita, 2008 35,486 Current US$ 2008

Annual Disposable Personal Income per Capita, 2009 35,379 Current US$ 20092

Total Exports of Goods 660.8 Bil. US$ 2008

Total Imports of Goods 1,054.9 Bil. US$ 2008

Employment in Retail Trade 15,356.3 Thou. 2008

Number of U.S. Shopping Centers 90,000 2009

Source: Plunkett Research, Ltd. Copyright © 2009, All Rights Reserved

Traditionally business drove innovation and technology within a business sector.

As industries grew with increasing consumer demand for product variety andenhancements, in order to face these challenges and alleviate business concerns,enterprises heavily invested in Research & Development which led to innovation andtechnology, which is a direct result of increased need of business functions. This providedan opportunity for business growth and efficiency that eventually led to a successful business model. However, that is not the case today within the vast technologicallyadvanced society as roles are reversed and information technology drives business success.Today’s retail business is highly dependent on information and if barriers are not met, athriving business will soon be doomed.



Now information is considered a highly valued asset to an organization and if businesses do not address these information barriers soon, they will face the compound inaccelerated growth in information which will drive organizations out of business. In thehighly competitive consumer/retail industry, any information about your customer spending pattern/habits/preferences is an asset and competitive advantage to you over your

competitor. Unfortunately, if you do not invest acquiring relevant information that is a business necessity to survival of the company as competitive advantage, then the companywill lose business with poor customer relationships. Today’s customers are highlyinformative and price sensitive, so if they are not satisfied there are many more optionsavailable to them. As a result they will substitute to another vendor.

As I have mentioned in the previous paragraph, information is vital to continuanceof a business in the age of information and advanced technology. Information system,technology, the emergence of the World Wide Web, and instant connectivity although hashelped but made it more difficult and burdensome for retailers to operate in their businessniche. With an informed, educated, and price sensitive customer base, it has gotten merelymore difficult for businesses to thrive as their profit margins shrink due to reasons

mentioned above as well as increased competitiveness of the industry and importance of value of information. To provide more credibility to the argument and claims which I ammaking, here is an excerpt compiled from various sources, www.ezinarticles.com, www.retailindustry.about.com, etc which support my point of view:

“Society regards information as a commodity and the possession of it as an asset.Information has become an element of commerce. In earlier times, success was based onsuch criteria as control of finance, physical resources, writing, food, fire or shelter. Today,successful people and businesses are those who control information: its development,access, analysis and presentation. We refer to this era as the "Information Age." We buyand sell information, sometimes with money and sometimes by trading it for other information. Information, as an element of commerce, is a commodity, yet there are nocogent, universally accepted accountings or economic theories of information. In the for- profit world, information is a prized possession. It is often how a company creates its"competitive advantage" in the marketplace. Knowledge is king, and companies spendmillions of dollars not only protecting their "intellectual property," but also developinginformation systems that allow knowledge to be collected and used effectively throughoutthe organization. Ten to fifteen years ago, corporations realized that the numerous,unconnected software programs, spreadsheets, and databases that had been developed over the years by various departments of the company were becoming a liability rather than anasset. Internally, the company couldn't talk to itself. The solution has been an integratedapproach to information, sometimes known as "enterprise software" or "customer relationship management (CRM)." Both systems take a company-wide approach toinformation. It is imperative of business success that companies take a leadership stanceand become information leader to thrive in the retail industry. Organizations must takeappropriate measures to acknowledge that information is a valuable asset of theorganization, and make certain that it is treated with the appropriate resources, policies, priority and security. As part of continuous business process, organizations must developinformation management/strategic technology plan which contain the information neededfor business to operate effectively, make good decisions, and how that information iscollected, stored and used. It will also incorporate policies, procedures, training, and reachdown to the level information retention. To the extent possible, develop informationsystems and information protocols and policies centrally. The proliferation of individuallydeveloped spreadsheets and databases impact collaboration, create fragmentation and add

http://www.ezinarticles.com/


http://www.retailindustry.about.com/


http://www.retailindustry.about.com/



expense when there is staff turn-over. Information is an organizational asset far more

importantthan theactualhardwarethat houses

it. When thisfact is

neglected, this asset literally and figuratively walks out the door at considerable expense tothe organization.”To be a successful organization and information leader, you must treat information asvaluable asset, with the related priority, resources, and procedures.

Observing from the information provided by the graph, we can conclude that informationaccess is the top priority for the IT department in every major line of business. Asinformation grows exponentially, it has become a serious challenge for businesses to possess the right information at the right time to help them make important informedstrategic decisions. Information lifecycle is essential and top priority for IT departmentsacross all business sectors. According to another research survey by Capgemini,“information opportunity report confirms that better information exploitation offersorganizations substantial opportunities for business performance improvement. The prizefor those that succeed will be significant; the consequences for those that fail, or don’t eventry, will be dire.” Research indicates that 43 percent strongly agree and 37 percent agreethat exploiting information is critical driver for world class business performance. Also,Capgemini research shows that if organizations were to successfully exploit itsinformation, business performance would improve by as much as 32 percent within theretail and consumer industry. We can conclude from the above research facts that not onlyinformation exploitation is vital to the organization, but if not utilized the consequences of not adopting are dismal. With an accurate and reliable data, the retailer Will have an opportunity to reduce the time to implement promotions, gain control innegotiating provisions with suppliers, or implement real-time merchandising by enabling a“read and react” replenishment of merchandise as it’s pulled off the shelf. Or enrich the



forecasting process with insightful demographic and market analyses. In retrospect,information is the most prized possession of retailers in the most competitive retailindustry today, as companies strive to convince highly informative and price sensitiveconsumers to buy their products or merchandise on the basis of sheer differentiation.

Traditional growth models that focused on rolling out more stores and adding more product lines, no longer enjoy the return on investment they once did. Yet, despite themany challenges and pressures in today’s tough retail environment, a handful of retailersare significantly outperforming the market. These retailers are succeeding because they areable to adapt and change to the environment and develop new ways of serving customersrespecting the dynamics of retail industry trends and adapting accordingly.

The retail industry is in a state of explosive growth. One does not have to look much further to locate the nearest mall or shopping complexes to appreciate the enormityof this growth. For many years the retail industry had been disorganized and consisted

mostly of single-store outlets, a few retail chains and a large number of friendlyneighborhood shops. These outlets had pre-historic supply chains, inefficient inventorymanagement; very few were customer focused and most were in the small to mediumcategory. The sudden surge in demand and a greater awareness amongst buyers for quality products and services, created a space that could only be met by an organized retail sector.With successful supply chains, efficient inventory management and a totally customer focused view that was nonexistent. One of the key factors in achieving an organized andefficient retail operation is the use of technology as an enabler as I have mentioned before.

The right implementation of IT solution is the key difference maker between asuccessful and thriving retailer and a failing one. IT is the solution to efficiencies,extending profitability, and most importantly customer satisfactions. National chain



retailers have multiple warehouses, offices, and retail outlets. The right IT solution whichwill enable the headquarters to have a real time central connectivity to all the data from allvarious sources will allow the central headquarters to react on impulse on daily inventoryturnover rate at each outlet, will know the stock-out items and immediately replenish, products which are selling the most and in which region and which stock-out inventory is

available in another retail location or warehouses closest The ability to have currentinformation on a real time basis and analyzing that data for better forecasting are some of the benefits provided by technology.

In a competitive retail industry, the right IT and telecommunications infrastructurewill be an immense difference and a huge competitive advantage over competitors in termsof cost savings, productivity and inventory management. In the age of modern technology,digital signage, customer relations, relative advertisement, marketing, and improved pricing strategy should be implemented to enhance customer experience immensely todistinguish your business from competitors. By offering store and loyalty cards tocustomers is an example of an advantageous implementation of current technology whichenables vendors to not only enhance customer experience by rewarding shoppers with

discounts but also tracking spending habits and buying trends of their customers. Byknowing customer buying patterns and tailoring their promotional campaigns consistently,vendors will be able to anticipate customer preferences so they can staff and stock levelsaccordingly. Retail branding is an important and current trend of the retail industry to tailor the unique taste of every consumer. Although pricing seems to be an issue to almost everyconsumer but it is not the only consideration for them. Focusing only on price will make avendor only one dimensional and diminish the customer experience, increasedissatisfaction, loss of reputation, and overall devaluation of brand in an important branding trend. This will all lead to what we have witnessed in 2009, a complete businessfailure. As I mentioned before, evolution of business practices and product variety is mostcrucial to success of a business and as economy shifts and consumers demands change,retailers must tailor to that change and refine strategy. “Brands should be continuouslyevaluated to better reflect the needs of ever-changing marketplace.”



There are other examples of IT solutions that are implemented daily for improved business efficiencies. For example, there is IT solution to send alerts for out-of-place or out-of-stock merchandise. Magnetic strips or barcodes, RFID, are use to place merchandisein proper location on the floor or in the stock room. It provides vendors with a reference point to locate certain items. There are numerous benefits and advantages to implementing

these technologies. For example, RFID or magnetic strip or barcodes can actuallycontribute countable financial benefits by properly placing items to locations wherecustomers wonder the most and impulse shop. Or when customers place items at the wronglocations where they are not in an easy view or are blocking or items which causesdisorganization. All these situations described, if properly managed, will bring monetary benefits to the vendor.An excerpt from an article from www.ezinearticles.com stating the importance of technology and implications for retailers:“Technology has grown in leaps and bounds over the last decade and will continue to growin a geometric progression. In the retail industry profits are not made through a singletransaction but by establishing a rapport and a long term understanding with customers. It

is all about building reputation and customer relationships to profile customer buying patterns. Technology has vast and major implications in virtual shopping, where acustomer can shop anything he wants within a few clicks of a button. The best part of having an online shop is that it is accessible all the time. Most stores have an integratedonline shopping option which enables customers sitting from their offices.”

“Although e-commerce product sales totaled $146.4 billion in the United States in 2006,representing about 6% of retail product sales in the country, but its impact on the other 94% is substantial and growing.”According to U.S. Bureau of Labor Statistics, 15% of Americans use the internet toresearch products. According to shop.org, 2009 holiday season, the majority of workingAmericans with internet access on the job, 55% or roughly 73 million people did their holiday shopping research and some purchasing online. The web has helped consumers tofind discounters on instant access and they are taking advantage of it. Amazon had a $19

http://www.ezinearticles.com/

http://www.ezinearticles.com/



billion annual revenue and continues to grow, really without any difficulties even duringthe recent recession where every other major retailer struggled to generate positivenumbers. Wal-Mart also reported an astonishing $404 billion revenue in 2009 recession aswell but with profitable $13.4 billion net revenue. But again, who are we kidding becauseAmazon.com and Wal-Mart are on the top ten lists of retailers and they have a very well

established reputation. These two retailers are as unique and distinguishable as black isfrom white. Those retailers who cannot tread the surface with these two giants on price or convenience have to find other ways to differentiate their products or leave the business. If retailers who are unable to compete on price and convenience with retailer giants likeAmazon and Wal-Mart, according to retailindustry.about.com, vertically integrate.“Retailers have become vertical integrated product designers and developers. We arecertainly in the early days of this transformation which has not been easy for retailers of relatively small size, but a growing number of proprietary products and services that makethem unique, giving consumers a reason beyond price to shop with them. The retailterritory of the next 10 years is a unknown. New retail concepts and even manufacturersthat want their own stores have big opportunities to become big retail success. Distinctive

product offerings and unique but satisfying customer experience is the success story of thefuture retail industry.”



The economy is still in the process of recovery from recent recession and tough economicconditions will continue to exist for retailers. Revenues and profits for most retailers aregoing to be dismal except for a few successful giants like Wal-Mart and Amazon who canoffer low prices. The retail industry has evolved and continues to grow.The important issues now for retailers are to create brand recognition by tailoring tocustomer’s needs and preferences. One of the techniques utilized for doing this is digitalsignage rather than traditional paper signs which are static and boring. Digital signage is anelectronic display that provides advertisement content in and electronic form which can bechangeable and creative. Digital signage is preferable because it can provide more likeanimations and creations functions.

In concluding remarks, the retail industry has transformed from what it used to besingle shops, to what is now a much complex chain stores with world wide customer base.Globalization has expanded the market in which retailers operate so this transformation hasled to advanced information technology necessity to connect all the shops to one centralhub system to manage. As a result of advancement in technology and informed and pricesensitive customers, information has developed to be the most vital asset of the successfulretailers today. Information as an asset and information system technology is the most

important tools available to retailers. Technology has had a huge impact on the retailindustry transformation.



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http://www.accenture.com/Global/Services/By_Industry/Retail/Services/ITTransformationIndustry.htm

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http://www.reteksolutions.com/sections/about/aboutus.asp




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